The Term Sheet And What Is Still Negotiable

A term sheet sets out the proposed terms of a loan before formal underwriting starts. It is generally not binding, and it still determines most of what the final loan will look like.

What the document is doing

The lender is describing the loan it expects to be able to approve, conditional on the property and the borrower checking out during due diligence.

For the borrower, it is a basis for comparison between lenders and a signal of how seriously the file is being taken. It usually accompanies a deposit for third-party costs.

Because it precedes underwriting, terms can move afterward. A term sheet that quietly reserves the right to reprice after appraisal is offering less certainty than it appears to.

The economics that dominate attention

Rate, loan amount and term are the figures borrowers compare first, and they are the ones lenders have the least discretion over once credit policy is set.

The rate quoted is often indicative rather than fixed, tied to an index that moves until a rate is set at a defined point in the process.

Loan amount is usually constrained by the lower of several tests, so arguing for more without changing the property's income rarely succeeds.

Term length is similarly institutional. Lenders fund themselves over defined horizons, and a request that falls outside those horizons is usually declined rather than priced.

Structural terms have more give

Amortization period, any interest-only stretch, prepayment provisions, reserve requirements and the recourse position often carry more room than the headline rate.

These terms determine payment size, refinancing flexibility and personal exposure. A slightly higher rate with a longer amortization can produce a smaller payment.

Reserve and escrow requirements affect the cash needed at closing and monthly thereafter, and lenders sometimes adjust them for borrowers with a demonstrated record.

Conditions are the part that fails deals

The conditions list names what must be delivered before closing: appraisals, environmental work, entity documents, leases, financial statements and insurance evidence.

Each condition is a potential delay. Reading them at term sheet stage tells a borrower whether the stated timeline is realistic.

Conditions that depend on third parties are the ones to examine first, because the borrower controls neither their cost nor their schedule.

Where advice is required

Term sheets contain legal commitments about deposits, exclusivity and expense reimbursement even when the loan itself is not committed.

An attorney familiar with commercial lending in the relevant state should review the document, and a mortgage professional can say which terms that particular class of lender typically flexes.